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Honeywell Beats Guidance and Delivers 8% Reported Sales Growth and 29% Operating Cash Flow Growth; Raises High End of 2018 Earnings Guidance(1) by 10 Cents


• Reported Earnings per Share of $1.68; EPS2  of $2.12 (Excl. Separation Costs and Other Items), Up 18%
• Organic Sales Up 6% Driven by Widespread Growth Across the Business
• Free Cash Flow (Excl. Separation Cost Impacts) Up 42%, Conversion3  108%
• Also Raising Full-Year Sales, Segment Margin, and Free Cash Flow4  Guidance


MORRIS PLAINS, N.J., July 20, 2018 -- Honeywell (NYSE: HON) today announced financial results for the second quarter of 2018 and raised its full-year sales, segment margin, earnings per share1, and free cash flow4 guidance.

 

“Honeywell delivered another outstanding quarter with continued top-line growth, strong margin expansion, and double-digit earnings per share and free cash flow growth. Organic sales grew 6 percent, driven by continued strength in Aerospace; demand for Intelligrated warehouse automation solutions; and growth in residential thermal solutions, thermostats and ADI global distribution in our Homes business. We also saw continued robust short-cycle demand for our process automation solutions. The increased volumes, combined with our operational excellence initiatives, drove 60 basis points of segment margin expansion, above the high end of the guidance we provided in April. Our operational performance resulted in earnings per share2 (excluding separation costs and other items) of $2.12, up 18 percent, exceeding the high end of our guidance range,” said Darius Adamczyk, Chairman and Chief Executive Officer of Honeywell. “We generated approximately $1.7 billion of free cash flow (excluding separation costs) in the quarter, up 42 percent, with conversion3 of 108 percent, and we continued to put our strong balance sheet to work by repurchasing about $800 million in Honeywell shares in the second quarter. In the first half of the year, we repurchased approximately $1.7 billion in Honeywell shares.

 

“Given our strong second-quarter performance and confident outlook, we are raising our 2018 guidance. For the full year, we now expect organic sales growth to be 5 to 6 percent, segment margin expansion to be 40 to 60 basis points, earnings per share1 to be $8.05 to $8.15, and free cash flow4 to be $5.6 to $6.2 billion,” Adamczyk said.

 

“Our software and Connected offerings continue to gain traction. Across our segments, Connected software sales have grown double-digits year-to-date. The portfolio transformation activities we announced last year are nearly complete, with the spin of our Transportation Systems business, Garrett, expected to be complete by the end of the third quarter, and the spin of our Homes business on track for completion by the end of the year. Our long-cycle orders and backlog grew 11 and 14 percent respectively, which positions us well for the rest of 2018 and into 2019. We are committed to delivering outstanding returns for our shareowners over the long term,” Adamczyk concluded.

 

A summary of the Company’s full-year guidance changes can be found in Table 1.

 

Honeywell will discuss the results during an investor conference call today starting at 9:30 a.m. Eastern Daylight Time.

 

Second Quarter Performance

Honeywell sales for the second quarter were up 8 percent on a reported basis and up 6 percent on an organic basis. The difference between reported and organic sales relates to the impact of foreign currency translation. The second-quarter financial results can be found in Tables 2 and 3.

 

Aerospace sales for the second quarter were up 8 percent on an organic basis driven by growth in business aviation OE, demand in the commercial aftermarket, strength in U.S. and international defense, and demand for light vehicle gas and commercial vehicle turbochargers in Transportation Systems. Segment margin expanded 30 basis points to 22.6 percent, primarily driven by volume, commercial excellence, and lower customer incentives, partially offset by higher volumes of lower-margin OE shipments.

 

Home and Building Technologies sales for the second quarter were up 3 percent on an organic basis driven by continued strength in residential thermal products and thermostats, commercial fire and software, as well as global growth in the ADI distribution business. Segment margin expanded 60 basis points to 16.8 percent, primarily driven by commercial excellence, the benefits from previously funded and executed restructuring, and higher sales volumes.

 

Performance Materials and Technologies sales for the second quarter were up 3 percent on an organic basis driven by strong backlog conversion and short-cycle demand in Process Solutions, catalyst and engineering growth in UOP, and continued demand for Solstice® low global warming materials. Segment margin expanded 50 basis points to 22.1 percent, primarily driven by commercial excellence, benefits from previously funded and executed restructuring, and higher volumes, partially offset by inflation.

 

Safety and Productivity Solutions sales for the second quarter were up 11 percent on an organic basis driven by continued double-digit sales growth in Intelligrated, strong demand for new Mobility products, and higher volumes in Sensing and IoT. Segment margin expanded 150 basis points to 16.5 percent, primarily driven by higher sales volumes and commercial excellence.


To participate on the conference call, please dial (866) 548-4713 (domestic) or (323) 794-2093 (international) approximately ten minutes before the 9:30 a.m. EDT start. Please mention to the operator that you are dialing in for Honeywell’s second quarter 2018 earnings call or provide the conference code HON2Q18. The live webcast of the investor call as well as related presentation materials will be available through the “Investor Relations” section of the company’s Website (www.honeywell.com/investor). Investors can hear a replay of the conference call from 1:30 p.m. EDT, July 20, until 1:30 p.m. EDT, July 27, by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international). The access code is 5576508.

 

TABLE 1: FULL-YEAR 2018 GUIDANCE 5

Previous Guidance

Current Guidance

Sales

$42.7B - $43.5B

$43.1B - $43.6B

   Organic Growth

3% - 5%

5% - 6%

Segment Margin

19.3% - 19.6%

19.4% - 19.6%

   Expansion

Up 30 - 60 bps

Up 40 - 60 bps

Earnings Per Share

$7.85 - $8.05

$8.05 - $8.15

   Earnings Growth

10% - 13%

13% - 15%

Free Cash Flow

$5.3B - $5.9B

$5.6B - $6.2B

   Growth

7% - 20%

13% - 26%

 

TABLE 2: SUMMARY OF FINANCIAL RESULTS – TOTAL HONEYWELL

2Q 2017

2Q 2018

Change

Sales

10,078

10,919

8%

   Organic

 

 

6%

Segment Margin

19.0%

19.6%

60 bps

Operating Income Margin

15.9%

16.3%

40 bps

Earnings Per Share

 

 

 

   Reported

$1.80

$1.68

(7%)

   Excluding Separation Costs of $346M and $12M Adjustment to

   the 4Q17 U.S. Tax Legislation Charge

$1.80

$2.12

18%

Cash Flow from Operations

1,447

1,861

29%

Free Cash Flow (Excluding Separation Cost Impacts of $67M)

1,214

1,729

42%

 

 

 

 

 

TABLE 3: SUMMARY OF FINANCIAL RESULTS – SEGMENTS

AEROSPACE

2Q 2017

2Q 2018

Change

Sales

3,674

4,058

10%

   Organic

 

 

8%

Segment Profit

819

918

12%

Segment Margin

22.3%

22.6%

30 bps

 

 

 

HOME AND BUILDING TECHNOLOGIES

 

 

 

Sales

2,414

2,546

5%

   Organic

 

 

3%

Segment Profit

391

427

9%

Segment Margin

16.2%

16.8%

60 bps

 

 

 

 

PERFORMANCE MATERIALS AND TECHNOLOGIES

 

 

 

Sales

2,561

2,698

5%

   Organic

 

 

3%

Segment Profit

553

597

8%

Segment Margin

21.6%

22.1%

50 bps

 

 

 

SAFETY AND PRODUCTIVITY SOLUTIONS

 

 

 

Sales

1,429

1,617

13%

   Organic

 

 

11%

Segment Profit

214

267

25%

Segment Margin

15.0%

16.5%

150 bps

 

 

1EPS guidance excludes pension mark-to-market, separation costs related to the spin-offs of the Homes and Transportation Systems businesses, and adjustments to the 4Q17 U.S. tax legislation charge. We do not publish forward-looking EPS guidance on a GAAP basis as management cannot reliably predict or estimate, without unreasonable effort, pension mark-to-market expense as it is dependent on macroeconomic factors, such as changing interest rates and the return generated on invested pension plan assets, separation costs given the inherent uncertainty of any such estimates, and any adjustments to the 4Q17 U.S. tax legislation charge as the amounts are provisional and subject to change.   

2EPS excludes separation costs related to the spin-offs and adjustments to the 4Q17 U.S. tax legislation charge.

3Free cash flow conversion excludes impacts from separation costs related to the spin-offs and adjustments to the 4Q17 U.S. tax legislation charge.

4Free cash flow guidance excludes impacts from separation costs related to the spin-offs.

5Guidance for EPS and EPS V% excludes pension mark-to-market, separation costs related to the spin-offs of the Homes and Transportation Systems businesses, the 4Q17 U.S. tax legislation charge and adjustments to such charge; guidance for free cash flow and free cash flow V% excludes impacts from separation costs related to the spin-offs.

 

Honeywell (www.honeywell.com) is a Fortune 100 software-industrial company that delivers industry specific solutions that include aerospace and automotive products and services; control technologies for buildings, homes, and industry; and performance materials globally. Our technologies help everything from aircraft, cars, homes and buildings, manufacturing plants, supply chains, and workers become more connected to make our world smarter, safer, and more sustainable.  For more news and information on Honeywell, please visit www.honeywell.com/newsroom.

 

This release contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, that address activities, events or developments that we or our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current economic and industry conditions, expected future developments and other factors they believe to be appropriate. The forward-looking statements included in this release are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, governmental, and technological factors affecting our operations, markets, products, services and prices, as well as the ability to effect the separations. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements, including with respect to any changes in or abandonment of the proposed separations. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other filings with the Securities and Exchange Commission.

 

This release contains financial measures presented on a non-GAAP basis. Honeywell’s non-GAAP financial measures used in this release are as follows: segment profit, on an overall Honeywell basis, a measure by which we assess operating performance, which we define as operating income adjusted for certain items as presented in the Appendix; segment margin, on an overall Honeywell basis, which we define as segment profit divided by sales; organic sales growth, which we define as sales growth less the impacts from foreign currency translation, acquisitions and divestitures for the first 12 months following transaction date, and impacts from adoption of the new accounting guidance on revenue from contracts with customers that arise solely due to non-comparable accounting treatment of contracts existing in the prior period; free cash flow, which we define as cash flow from operations less capital expenditures and which we adjust to exclude the impact of separation costs related to the spin-offs of the Homes and Transportation Systems businesses, if and as noted in the release; free cash flow conversion, which we define as free cash flow divided by net income attributable to Honeywell, excluding pension mark-to-market expenses, separation costs related to the spin-offs, the 4Q17 U.S. tax legislation charge, and adjustments to such charge, if and as noted in the release; and earnings per share, which we adjust to exclude pension mark-to-market expenses, as well as for other components, such as separation costs related to the spin-offs, the 4Q17 U.S. tax legislation charge, and adjustments to such charge, if and as noted in the release. Other than references to reported earnings per share, all references to earnings per share in this release are so adjusted. The respective tax rates applied when adjusting earnings per share for these items are identified in the release or in the reconciliations presented in the Appendix. Management believes that, when considered together with reported amounts, these measures are useful to investors and management in understanding our ongoing operations and in the analysis of ongoing operating trends. These metrics should be considered in addition to, and not as replacements for, the most comparable GAAP measure. Refer to the Appendix attached to this release for reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures.